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Financial management is a necessary skill for everyone. Since we live in a consumerist society, we have no choice but to use money in order to buy the things that we need to survive. Most of our actions usually involve money. We get an education so we can be qualified to earn a living someday. We go to work in order to get a salary so we can buy the things that we need to survive. We improve our knowledge and skills so we can demand a higher pay. The way our society is arranged makes it impossible for us to live without money. This is the reason why we need to learn how to manage moneywisely. The concept of financial management and the skills you need to implement it is not that complicated. This is especially true if you have a steady income coming in. You can easily budget your money because you know how much to expect each month. But how can you manage your money if you are a freelancer? How is it possible to plan your finances if you are not sure how much money will come in every month? If you did not know, the salary of a freelancer is not the same each month. It depends on how hard you work and the clients who will avail of your services. This is the main challenge for freelancers. According to FastCompany.com, more than 60 million people are expected to become independent workers or freelancers by 2020. That is only 4 years away. If you have every intention of becoming a freelancer yourself, you need to learn how you can manage your finances so you can make smart decisions about your irregular income.
3 lessons to help freelancers manage their finances
There are various benefits when you become a freelancer. A study published on UpWork.comrevealed that 6 out of 10 freelancers are earning more compared to what they got while employed. Although the income is not as steady or stable as being employed, the flexibility and room for career and income growth compensate for the risk. This is especially true for Millennials who love the flexibility that freelancing can give. With the advancements in technology making it possible to pursue a freelancing career, you can expect that the numbers will really grow over the years. But before you dream about becoming a freelancer, here are financial lessons that you need to learn to help you with financial management challenges. Never live without a budget. First of all, you should never, ever try to live without a budget. The thing about freelancing is your income will become unpredictable. You need to build a budget that will help you survive the lean times. In fact, some freelancers will say that a budget will be your saving grace. You need to create a well-crafted budget plan that will allow you to meet all your monthly expenses and various financial obligations. Remember that these will not change just because your freelancing income is low. Negotiation brings out the best value for money. Another important lesson that freelancing will teach you is how to negotiate. To start with, you need to learn how to negotiate the price that you will charge for your services. Do not give free services because you need the income to financially support your lifestyle. You need to know your worth and to negotiate a good deal so you can get paid for your hard work while encouraging repeat clients. This is an essential skill that you need to learn. This is not only applicable to your work. You should also learn how to negotiate every expense in your life. Do not agree to a price at first glance. You have to negotiate to get the most out of the value of your finances. The only way to do that is to learn how to negotiate and recognize a great value for your money. The future is uncertain. The final lesson that you need to keep in mind is that the future is uncertain when you are a freelancer. This is not to scare you or anything. But this is the reality in a freelancing career. You are not guaranteed an income. It will all depend on how you perform each month - much like how sales people earn through their commissions. This uncertainty is actually both good and bad. The bad side is the fact that you may not earn anything - at least if you do not work hard enough. According to an article published on Score.org, freelancers have to hustle to find work and ensure that they will earn enough to live on. While that can be alarming, you should also understand that you have complete control over your future. It may be uncertain but you have the power to make it better. You just have to be determined to succeed and work hard to earn more than enough for your lifestyle. In connection with the last part, thinking about an uncertain future will make you cautious about your financial decisions. In some way, this will teach you to be smart during financial management. When you have a perception that the future is uncertain, you will naturally want to prepare for it by saving for your future. Not only that, it will also prompt you to build up your emergency fund. Both of these will help you secure your financial situation.
Financial tips to help you survive on a freelancer’s income
The benefits of becoming a freelancer outweigh the risks. The main risk of freelancing is the unstable income - which can be dealt with through proper financial management practices. If you really want to survive on a freelancer’s income so you can work at home, here are some tips that you need to implement in your life.
- Understand your expenses. Make sure you carefully analyze your finances. You need to think about what you are really spending each month. Record everything that you spend on - from the smallest to the biggest expense. Track all your expenses for a month. You need a clear and accurate view of where your money goes.
- Create a frugal budget. Once you know how much you spend each month, you can work on creating a frugal budget. Why a frugal one? You need to base your budget on the lean months of your freelancing career. This is the only way that you can guarantee that you will not fall short. Whatever you earn during the lean months - that is where you need to base your expenses from. If your current expenses are more than that, then you have to cut back on some of them. It is better to have a lot of extra money at the end of the month rather than fall short. When your income increases, you can change your budget.
- Come up with your ideal budget. This is actually up to you. Some people will choose to keep on living on a frugal budget. But if you know that it is something that you cannot live with, then create an ideal budget with all the expenses that will help you support the type of lifestyle that you want. This will be a more extravagant version of your frugal budget. It can be the basis of your target income - which is the next thing that you have to work on.
- Determine your income target. Once you have set your budget, you know that income that you need to target each month. This can be a yearly or monthly target - it depends on the type of work that you do and the budget that you created. For some freelancers, it is easier to set a yearly target because their income varies each month. This should help make financial management easier to accomplish.
- Build up your emergency fund. This is the fund that will help you survive the lean months - when your income cannot meet even your frugal expenses. Not only that, this is the fund that will help you pay for any unexpected expenses that you will encounter. When it comes to emergency expenses, it is not a matter of “if” but “when”.
- Always have financial goals. Finally, you have to work on your financial goals - both short-term and long-term. The short-term are usually the expenses that you have to meet like a new appliance or furniture - or even a vacation. The long-term goals involve your retirement and even the college education of your kids. It is important to set goalsbecause these will motivate you to work hard and earn more.
Living as a freelancer is very rewarding but make sure you implement financial management skills that will help you stabilize your income regardless if it is a lean month or not.